Not Approving the Keystone XL Pipeline May be Riskier than We Thought

Photo credit: Flickr/tarsandsaction

The hotly contested Keystone XL pipeline that TransCanada (NYSE: TRP  ) is proposing to build just took another interesting turn. An updated analysis from the Department of State now estimates that injuries and deaths caused by not approving the pipeline are four-times higher than previously thought. This revised analysis is due to the fact that the oil earmarked for the Keystone XL will end up being transported by rail. The issue is that transporting oil by rail is becoming a more explosive risk than anyone previously expected.

A significant revision
An initial assessment of TransCanada's Keystone XL pipeline estimated that moving the oil earmarked for that pipeline by rail would contribute to 700 injuries and 92 deaths over the next 10 years. However, given the rash of rail incidents, as well as an erroneous database search, the government updated its numbers and raised estimates fourfold. Now, the State Department estimates that rail transportation could lead to 2,947 injuries and 434 deaths in the next decade.

So far America has been lucky in that the recent oil train derailments haven't caused any significant injuries. The most recent derailment in Lynchburg, Virginia only resulted in 350 people being evacuated from the downtown river district near the spill. Overall, 30,000 gallons of oil spilled into the James River but the resulting explosion was far enough away that it didn't cause any harm. However, as Canada experienced last year, these trail derailments can have tragic consequences as the town of Lac-Megantic in Quebec lost 47 people after an oil train derailed and exploded in the center of town. While the State Department isn't saying such a disaster is a certainty, the possibility increases as more oil heads onto America's rail system. 

Ripple effect
What will be interesting to see is if these revisions to the Keystone XL pipeline casualty assessment have any ripple effects within the industry. The Keystone XL pipeline isn't the only project that's being opposed by environmentalists, which is resulting in more oil heading onto North America's railways. For example, Kinder Morgan (NYSE: KMI  ) and its Kinder Morgan Energy Partners (NYSE: KMP  ) subsidiary are proposing to expand the Trans Mountain pipeline in Canada to triple its capacity. That project, however, has come under intense pressure as there are worries that the pipeline could leak and cause untold environmental harm.

Photo credit: Kinder Morgan

What's intriguing about the whole situation is the fact that most environmentalists oppose developing the oil sands in general because it's a more carbon intensive energy supply. The idea is that by protesting the pipelines they can impact the project economics of the oil sands to such a degree that these projects become uneconomical. However, the industry has found that rail can be economical enough that most oil sands projects are still moving forward. That's creating quite a dilemma for environmentalists as they now will need to weigh the potential environmental cost of an oil train leak in an environmentally sensitive area with the growing concern of an explosive train derailment in the center of town.

Investor takeaway
As more oil train disasters occur it could have a ripple effect and turn public opinion back into supporting these projects. This would enable Kinder Morgan and Kinder Energy Partners to finally move forward on the $5.4 billion Trans Mountain pipeline expansion project and even enable TransCanada's Keystone XL pipeline to finally be approved. However, the hope is that just the increased risk of a tragedy is enough to move forward with these critical projects and that it doesn't take a repeat of Lac-Megantic in a small American town to get these pipelines built. 

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Read/Post Comments (10) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 17, 2014, at 9:23 PM, acapoz wrote:

    how does this help America become energy independent when we are exporting this product after it enters the gulf?

    Why does this pipeline need to be built close to the Ogalliala Aquifer which supplies 8 U.S. states with clean drinking water. I work in the water industry and know very well that pipes will leak / break..... guaranteed.

  • Report this Comment On June 17, 2014, at 10:52 PM, climatemarch wrote:

    We can't drink oil. Water contamination is one of the many problems with tar sand extraction, processing and transporting. The other HUGE problem is that we have a climate crisis going on. DUH!! We have to stop burning fossil fuels, and tar sands are one of the dirtiest on our soon-to-be unliveable planet.

  • Report this Comment On June 17, 2014, at 11:18 PM, madmilker wrote:

    America has over 2.5 million miles of pipelines ....

    Keystone will be 1400 miles...

    How can 1400 be anymore harmful than the 2.5 million miles that is already here....

    And when it comes to that so-call "climate crisis"....

    well...Wal*Mart commissioned super cargo ships years ago to bring Made In China to America. It is said that one super cargo ship pollutes as much as 50 million cars each year....

    Do you know how many of those ships Wal*Mart commissioned?

    You people will wake up one of these days and realize the the ignorant rich have a agenda just like the smart rich do...

    1975 the last year America had a trade surplus.

    Retail makes NOTHING...it only moves a country's currency.

    duh..!

    Wal*Mart's Global Procurement Office is in China.

    duh..! again.

    oh..!!

    Warren Buffett bought his Choo! Choo! after Wal*Mart partnered with a billionaire in Hong Kong on a port in Mexico...

    duh..!

    Ain't this article about trains too...

    duh..!!

  • Report this Comment On June 18, 2014, at 2:02 AM, Heidikitty wrote:

    Face it! 2016 may be the answer for Keystone pipeline or any other as nothing seems to get passed only put off over and over again.

    These pipelines would put a lot of people back to work and they need to be passed in my opinion.

    I am just a share holder and can only add a comment. Sorry if this offended anyone but that is my humble opinion.

  • Report this Comment On June 18, 2014, at 10:52 AM, conmaggot wrote:

    Here's my investor's take:

    The Midwest U.S. enjoys a regional oversupply of oil that moderates energy prices. Building the XL pipeline will increase the cost of oil in the Midwest and that will have a stronger ripple effect on the economy than 'trucking/rail incidents.'

    The testimony given to Canada's National Energy Board regarding the price increase they expect to get from the U.S. if the pipeline is built was projected to be at least $4 billion in 2009.

    I'd expect it to be higher.

    Most small investors would lose more in cost increases from expensive oil than any gains they'd realize from owning energy stocks.

  • Report this Comment On June 18, 2014, at 11:31 AM, kennyhobo wrote:

    Obama's legacy is now in cement. Obama is a backstabbing, corrupt incompetent who covers his butt with lies! As the IRS Scandal unfolds, it now looks like Obama may be die in jail. It may take a few years, but Obama is going down for massive political corruption and racketeering.

  • Report this Comment On June 19, 2014, at 3:37 AM, Switch wrote:

    Not true, In 2013 99.99% of all crude reached their destination without incident (NTSB).

    One derailment, only 357 barrels spilled, completely

    contained on railroad property. Trains running again

    after only eight days. Cost to taxpayers negligible.

    On the other hand, Mayflower, AR the next EPA

    Superfund cleanup site.

  • Report this Comment On June 19, 2014, at 3:42 AM, Switch wrote:

    The Keystone XL pipeline is not a job creator it kills tens of thousands of current jobs. Every 100 to 130 miles along each railroad route are railroad

    yards. These yards are where train crews change.

    These are local jobs in each community. These are good jobs paying $30,000-$100,000 per year per employee. An added benefit is the fact that once the tar sands are gone the railroad can change to shipping freight, automobiles, and other merchandise. By the way, you do know that the United States gets none of the benefit of the oil, it will all be exported. All we get to keep is a toxic waste produced by the refining process and the possible pollution of one of our largest aquifers.

  • Report this Comment On June 21, 2014, at 1:29 PM, Heidikitty wrote:

    Just waiting for 2016 to do my vote. Like it or not if their is that much smoke their has got to be a fire and I think we have plenty fires to put out.

    On another note I am counting on the good people of the United States to do their home work.

    Freedom and the right to vote and invest in what we choose.

  • Report this Comment On June 24, 2014, at 4:50 PM, danwat1234 wrote:

    Hopefully people will protest enough against oil by rail and the keystone gets banned so they are in a tough spot.

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